Horizon: UK’s energy outlook moves from uncertain to fragile
3rd April 2012
Andrew Horstead, energy risk analyst at energy and carbon management specialists at Utilyx, says a replacement for the Horizon consortia needs to be found quickly, otherwise the country will face huge consequences around the security of supply.
Germany’s two energy giants, E.ON and RWE, have announced that they are pulling out of all new nuclear
development in the UK. This is bad news for the future energy security
of the UK. The UK is paying the price of Germany’s decision to pull out of nuclear and the subsequent losses endured by both RWE and EON, who have clearly taken stock of the current economic conditions and decided that the time is not right to be investing such massive sums in new capacity.
With this latest setback, the UK is set to lose 12 gigawatts (GW) or 13 per cent of its installed coal generating capacity by 2015 and a further 7 GW of nuclear capacity by 2020 due to planned decommissioning.
To cover the planned capacity closures, the UK will increasingly rely on renewable
generation as part of its low carbon commitments while gas use is expected to increase. Renewables are set to benefit from generous subsidies and we expect an accelerated deployment of renewables over the coming years. Gas will be used as back up generation for intermittent wind although costs are expected to stay high. Current restrictions will prevent any new coal-fired power stations being built but without nuclear the system could be very stretched.Small-scale renewable generation
With only 60 large renewable builds (greater than 10 GW) getting commissioned in the last two years, according to Ofgem’s Renewable Obligation Certificate register, the future of renewable energy production heavily depends on businesses’ willingness to invest in small-scale generation. The Government is aware of this and its Electricity Market Reform proposals outline the benefits associated with businesses investing in small-scale generation projects. Even organisations with limited opportunities for on-site generation due to space or budget restrictions can take greater control of how much money they pay by purchasing green energy via long-term Power Purchase Agreements (PPAs). The huge advantage is that prices can be guaranteed and grid charges and environmental taxes are avoided.High-priced environment
We are operating in a high-priced environment where demand is increasing all the time, particularly from growing economies such as China. In response, businesses need to be prepared for a step-change in how they manage their energy buying to avoid price risks and maximise the opportunities that these ever-changing markets present.
The Government must set the right framework if it is to persuade the private sector to invest in low carbon and renewable forms of generation. Investors will not be drawn to the UK if policy
remains uncertain, overly complex and subject to change. This is an opportunity the UK simply cannot afford to miss. Failure to act now will only add additional cost and delay further down the line.
The UK’s future energy outlook is quickly moving from uncertain to fragile. There needs to be a replacement for the Horizon consortia and quickly, otherwise the country will face huge consequences around the security of supply around the turn of the decade.
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